–Oil Consumption:James Hamilton looks at whether oil consumption will continue to decline. “Miles driven grew at an average annual rate of 2.7% between 1980 and 2005. Suppose for illustration we believed that demographic and values shifts will result in growth at less than half that rate over the next decade. That would mean a net drop in U.S. oil consumption next year of 1.3 – 2.2 = -0.9% under Scenario 1 and a drop by 2020 of (8)(1.3) – 11.4 = -1.0%. By contrast, under Scenario 2 we’d be talking about a 7.4% decline by 2020. With current oil consumption around 18.7 mb/d, that would correspond to a saving of 1.4 mb/d by 2020. Note these calculations do not take into account further possible reductions from increased use of biofuels and natural gas for transportation. My conclusion is that if the price of oil remains at its current value, an ongoing decline in U.S. oil consumption over the next decade is a plausible baseline scenario even without the currently planned CAFE standards. If the price rises modestly from its current value (as the IEA analysis assumes), given the increased commitment to conservation already embodied in current standards, a reduction in consumption by 2020 of the size assumed in the IEA report looks reasonable.”

–Output:Ed Yardeni examines how economic output. “Last week, I noted that real GDP on a y/y basis has been growing around 2.0%-2.5% since Q1-2010. That’s subpar. It was up 2.5% y/y during Q3. On the other hand, real output of nonfarm business was up 3.5% during Q3, and has been hovering around 3.0%-3.5% over the same period. Nearly all of the difference can be accounted for by the weakness in government spending. That’s not a bad development from my perspective. The so-called “New Normal” is actually a combination of abnormally weak government spending on goods and services and relatively normal activity in the private sector. Remove the government (please!), and the economy looks like the Old Normal! The growth in nonfarm business output since mid-2010 has been driven by relatively stable growth of about 2% in total hours worked in the nonfarm business sector and solid gains in productivity. That’s all good from my perspective.”

–European Bonds:Antonio Fatas notes the recent drop in European bond yields. “In Europe the evolution of interest rates for governments bonds has been very different with several countries seeing very high levels and in some cases no access to funding. The fear was due to probability of default and potentially an exit from the Euro area, not so much inflation. But after a volatile period and following the statement of Mario Draghi supporting the Euro (no action yet) and the more recent agreement for funding for Greece and Spain, interest rates are coming back to levels which are not far from the historical average during the Euro period (and significantly lower than what these countries faced before joining the Euro).”

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